We know electric cars make sense – but we need a financial push to buy one

From tax incentives to cash grants, ‘price signals’ are the key to increasing the uptake of electric vehicles in New Zealand, writes Victoria University’s Lisa Marriott.

On Friday 13 July, Climate Change Minister James Shaw stated that in order for New Zealand to meet its zero carbon pledge nearly all the country’s cars will have to be zero emission by 2050. Aiming for a zero- or low-emission fleet is a worthy objective (under European Union legislation, low-emission vehicles have tailpipe emissions below 50g CO2/km). However, it is not at all clear what, if any, policy tools will be adopted to achieve this objective.

New Zealand has an unusual emissions profile. Gross greenhouse gas emissions have increased 19.6% since 1990. The agriculture and energy sectors contribute nearly 90% of the emissions. The difficulties with reducing agricultural emissions are well established. The same cannot be said of the energy sector and in particular of road transport, which contributes around 46% of the energy sector emissions.

At the end of 2017, the average emissions of light vehicles registered in New Zealand was 179.3g CO2/km. Compare this with the average emissions level of a new car sold in 2017 in the European Union of 118.5g CO2/km. It’s a big difference.

Things are slowly changing. At the end of June 2018, New Zealand had 8,696 plug-in electric vehicles (EVs) – or 0.2% of the country’s vehicle fleet. So how can we change the other 99.8% of vehicles? For once, there are many other countries we can look to for guidance. Not only that, there are multiple policy options.

First – let’s look at the tax system. We know that price signals influence purchasing behaviour. This is one way Norway has achieved its place as the world leader in EV adoption.

Globally, Norway has the highest uptake per capita of EVs. Over half of new car registrations in Norway in 2017 were electric or hybrid cars. This has happened because Norway has adopted a multi-pronged approach to encourage purchases of EVs. For example, EVs are exempt from purchase taxes and the 25% value-added-tax (our GST equivalent). EVs also benefit from free parking in public car parks, are exempt from tolls and domestic ferry fees, and are also exempt from the annual motor vehicle tax (the equivalent of our registration).

Electric cars come with many benefits in Europe (Photo: Miles Willis/Getty).

There are many other ways to provide a price signal:

Providing businesses with accelerated depreciation when they purchase low-emission company vehicles. Belgium provides for depreciation deductions of 120% for zero-emission vehicles. Conversely, limiting full depreciation deductions for purchases of high-emission vehicles.

Adoption of a bonus-malus scheme (i.e. carrot and stick). France provides a bonus of up to $10,000 for purchases of very low-emission vehicles (below 20g CO2/km), which tapers off to around $4,000 when the vehicle emissions are around 110g CO2/km. After this point, the malus component starts, which can equate to up to $16,000 in additional taxes for vehicles emitting over 200g CO2/km.

Different registration bands for vehicles based on their emissions. This approach is visible in Ireland and results in an initial registration charge between 14% (for a vehicle with emissions between 0 and 80g CO2/km) to 36% (for a vehicle with emissions over 225g CO2/km).

Implementation of grants, such as the Plug-In Grant Scheme in the United Kingdom. Seven categories of vehicles are currently eligible for the grant. These vehicles all have CO2 emissions of less than 50g/km and can travel at least 112km without any CO2 emissions. The grant pays for 35% of the purchase price of the vehicles, up to a maximum of $9,000.

There are good reasons for encouraging EV adoption in New Zealand. A key one is that, like Norway, New Zealand has high electricity generation from renewable sources, making adoption of EVs particularly attractive for reducing emissions.

There are, of course, financial implications to using the tax system to influence behaviour. And the tax benefits will go to those who can afford to buy new vehicles. Notwithstanding these factors, major change is necessary if we want to change vehicle purchasing patterns.

New Zealand does have initiatives, such as the Low Emission Vehicles Contestable Fund, which exists to encourage innovation and investment to speed up adoption of EVs and low-emission vehicles. However, the $7 million co-contribution to industry is unlikely to result in a noticeable difference in consumer vehicle purchasing patterns. Most initiatives funded to date are very small scale (e.g. co-funding acquisitions of EVs with private and public sector entities or co-funding installation of fast chargers) and will not impact on vehicle prices.

The Emissions Trading Scheme is the principal mechanism adopted to reduce road emissions, but the price signal this generates is typically accepted to be too low to make any noticeable difference in vehicle purchasing behaviour.

If we are genuinely committed to meeting our carbon targets, words need to be supported by action. Weak policy tools will not achieve strong behavioural change. The road transport sector is one where global experience shows that significant beneficial results are achievable when the tax system is used to influence the price of vehicles. What are we waiting for?

Lisa Marriott is Professor of Taxation in the School of Accounting and Commercial Law at Victoria University of Wellington

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